Gold settled lower on Tuesday after a reading of U.S. service-sector business activity came in stronger than expected, lifting the dollar, while the euro retreated ahead of a European Central Bank meeting later this week.
Investors are closely watching U.S. data for clues on when the Federal Reserve will taper its quantitative easing program, a major driver of higher gold prices during the financial crisis.
"We've seen some quite good economic data out of the U.S., which has led to a rise in the dollar and has weighed on commodity prices, gold especially,'' Commerzbank analyst Daniel Briesemann said.
(Read more: Divided gold market awaits jobs report)
"In addition, the ECB meeting is imminent on Thursday. After the very low inflation rate published for October, there are already rumours in the market that the ECB is going to lower interest rates,'' he added. "These expectations are also helping the dollar gain ground, and weighing on gold.''
This week's U.S. data prints will end with key non-farm payrolls numbers on Friday. Ahead of that, speculation is rife that the ECB may signal easier monetary policy or even cut rates at a meeting on Thursday.
That knocked the euro 0.5 percent lower against the dollar on Tuesday, pressuring gold, which is denominated in the U.S. unit.
Speculation that U.S. monetary easing is set to end has pushed gold prices down 20 percent this year.
"The U.S. dollar may gain ground as the currency markets are already being obliged to revisit previous expectations that the Fed will delay tapering QE until the end of Q1 2014,'' HSBC said in a note.
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